#marketing Are You Cutting Costs Or Creating Value?

The “cheap and cheerful” cost cutting train has left the station and it is not coming back anytime soon. I firmly believe that companies and organizations that think an outsource provider can provide easy cost cutting measures are standing at the wrong train platform. Unfortunately, there are too many people standing at this platform speaking at conferences touting inexpensive and simple fixes. I don’t believe them.

There are absolutely ways to cut costs. There are absolutely service providers who can and will deliver on those measures. Today, cutting costs is so much more than shaving a little off of the price the customer pays for something though. It is no longer easy (maybe it never was easy) and it is not a one-way street. It takes some ingenuity and effort from the buyer and the provider to deliver savings.

Highly collaborative relationships cut costs but use a very different approach than most.These relationships look at ways to create value. There are several good examples of ways in which companies create value and cut costs.

Value includes decreasing risks for both the buying company and the service provider. Decreased risks often decrease costs in measurable ways.

And, value includes increasing benefits to one or both parties, such as the buying company’s percentage of return customers.

When creating and sharing value, the issue becomes the level of involvement, investment of time and money and appetite for risk the parties are willing to accept. Creating value is not a one-sided exercise. It takes both parties to fully explore, invest (even if only time) and execute on plans to create value.

If you are reading closely, I am talking about the parties – plural. It will take both the company outsourcing the work and the service provider working together to create and share value.

Highly collaborative relationships create value for both parties. Wow. This can be a stretch for organizations who look for ways to create value only for themselves.

Wait—there’s more.

Highly collaborative relationships also share the value they co-create. It’s true. I’m not making it up. They devise mechanisms in their contract to allow one or the other party to reap financial rewards from the value that’s been created. Sharing can come in many forms from gain-sharing agreements, I.P. ownership, to xxxx.

Those relationships that are more willing to be intimately involved in creating and sharing value, those with the time and money to invest, and those who can accept some risk will be the best poised to remove costs from the relationship.